Organizations often purchase a system without understanding the true total cost of ownership (TCO). Everyone has financial pressures to operate their business as economically as possible, and frequently the mistake is made of asking for board approval with the lowest number possible.
A good question to ask prior to launching any technology project is, “Am I really comparing all of the apples-to-apples costs for installed functionality when comparing vendors?” I’ve often discovered after the budget was board approved that tens of millions of potential costs were left out, capitalized, paid for out of operational funds, or just absorbed. Or, even worse, a project scope is in place that does not accurately reflect the number of facilities, functionality, or the number of systems being replaced or interfaced to.
For the majority of hospitals, the largest budget line item in a five-year TCO is labor (up to 60 percent). Most project leaders account for internal project team cost, but then expect the organization to absorb the remaining costs found in the table below. When considering labor costs, project leaders should account for all labor-associated costs including:
Labor-Related Cost Line Item
Internal Project Team
Primary Vendor Project Team
Other Small/Legacy Vendor Team Members
Subject Matter Experts (SME)
Other Labor-related Costs
In contrast, most organizations do a good job of including the following costs in their TCO development efforts:
- Vendor license and maintenance fees: Although a small part of the overall cost, these are ironically where many organizations focus most of their attention.
- Peripheral upgrades (e.g., workstations, cars/WOWs, larger screens, printers, scanners, etc.): The true impact of these costs, which are most often the second largest cost category after labor, is often underestimated.
- Hardware and network costs.
Other often overlooked non-labor categories that can have a significant TCO impact include:
- Ancillary systems beyond the primary vendors’ interface license and maintenance, upgrade fees, etc.
- Unaccounted for training facilities and materials for thousands of end users
- Medical device integration costs
- Project team training class fees and travel
- Construction or facility redesign costs
- Marketing, supplies, celebration activities, command center meals, etc.
When developing a comprehensive TCO, define not only all that is included, but also clearly state exclusions upfront to avoid having to explain and absorb those costs later. The result is a much more accurate TCO which will ultimately help manage leadership’s expectations. Also important is the identification of the short- and long-term benefits to encourage operational buy-in and commitment.
This topic reminds me of an old saying, “There is never enough time and money to do it right, but always enough to do it over.” A bit of foresight and planning when developing the TCO will help ensure that your organization gets it right the first time and doesn’t need a do over.